Another Wildly Optimistic Assumption In Greece

In a note on the latest Greek deal, Morgan Stanley's Paolo
Batori, CFA, Daniele Antonucci, and Robert Tancsa report on
another wildly optimistic aspect of the Greek deal: The assumed
receipts from privatization programs.

Privatization receipts are a crucial input for the Greek debt
sustainability model. Greece has a substantial portfolio of
assets. The latest published Troika analysis estimates further
proceeds from privatizations of up to €45bn over time (although
the new bailout program might well stretch them over a longer
time period or, most likely, reduce the overall amount). Bond
market participants seem somewhat skeptical at this stage, given
limited granularity on the details.

Morgan
Stanley

We prefer to take a cautious stance too, and have
factored into our base case a smaller relief coming from
privatizations (less than €5bn), based on the partial
available information on Greece’s portfolio of real estate assets
and on Greece’s recent performance on this front. Yet Greece
could privatize more, and there is a risk that our estimate might
turn out to be too conservative further down the line – if extra
technical assistance exerts some effect. Therefore, we will be
monitoring the privatization processes to update our forecasts,
and, while taking a rather conservative approach at this
juncture, our scenario analysis also presents an alternative debt
trajectory encompassing privatization proceeds roughly in line
with official expectations. In this alternative scenario,
Greece’s debt/GDP does approach 120% in 2020 (although it stays
above that figure, given our cautious economic outlook).